Letter to Mr. Greenspan

Dear Mr. Greenspan

Before blaming the bad banks for giving easy loans and inflating the real estate bubble, let's look at the origin of all this. Well, the origin of course goes back to December 1913 but that is for another article. Let's focus on the most recent event, in 2002 when interest rate started going down all the way to 1%.

For others reading this and that don't know how the government "adjust" this interest rate, well, it is the same as how would you "adjust" the monthly rents for houses in a given city to a lower value? Simple: you build more houses that you put up for rent. The more houses for rent, the lower the rent. So, the more dollars printed, the lower the rent (in this case the interest rate)

If the interest rate have not been lowered, yes we would have faced a recession. Yes, that crazy bin laden would have been happy. And yes, Bush might have not been reelected.
So, the goal of lowering the interest rate was to kick start the economy by re-activating its consumer spending side. Indeed, it could not have been by re-activating the manufacturing side because that is moving abroad - again another problem of money printing, and another later discussion. So, the goal was to kick start this consumer driven economy. If consumers are not making more money, we need to facilitate them going into debt so they can spend. And that was done at the national level. Everyone could afford bigger houses, meaning new loans, meaning new money out of those loans to buy more stuff at Home Depot and to feed the Realtors etc.
That led to banks easing lending.... which led to where we are now.

So who's at fault Mr Greenspan for creating this monster? If all the protection was in place to prevent a buildup in real estate bubble, the economy would have not kept growing and we would have gone into a recession. Since interest rate were lowered to 1%, I can only assume that if that didn't work, they would have been lowered all the way towards 0% until they did kick start the spending. I mean, if avoiding a recession was the goal of lowering the rates, and that this recession was only avoided by this consumer driven economy to keep going...

So, please don't write books to try to go in history as an agent of peace who is blaming the lenders and all the others for this mess. You took care of the egg that brought up this monster.

Phil who wish was on Planet Gold.